HMRC has the right to make enquiries into your clients’ tax returns. This can be done in a number of ways, from an informal request for information, right through to a full formal enquiry where it can ask for pretty much anything that has any connection to their tax affairs.
Formal enquiries have to follow specific legislation, opened within a set time limit and in the correct way. This is usually via a letter informing your client that an enquiry is being opened and the relevant section of the legislation under which it is being conducted.
HMRC will usually have some information which suggests that a particular entry on a return is wrong, for example bank interest, and accordingly will open an aspect enquiry into this single entry. If it becomes apparent that there may be other areas of concern, it may be upgraded to a full enquiry later on.
In either case, the enquiry will remain open until a formal closure notice is issued. This will be a letter that either states the officer has completed their check, and there are no amendments needed, or it will set out any errors it has uncovered and inform the client of any additional tax and possibly penalties that must be paid. Your client has the right to appeal against the closure notice if you or they think it is incorrect, but you must do so within 30 days or it becomes final.
If your client is on the receiving end of an enquiry into their tax affairs, advise them to be proactive in helping HMRC resolve the matter quickly.
Pro advice: Being helpful will count in their favour if it turns out that they have underpaid tax, because if a penalty is to be charged there are reductions available for co-operative behaviour.
Sometimes your client will have been fully co-operative with the officer, but feel it’s becoming protracted. Most HMRC officers act reasonably during an enquiry, but there are some who appear to be determined to find something wrong even where there is little or no evidence to suggest any errors. In these cases enquiries can drag on for months or even years with little or no progress. This is stressful for your client, but thankfully there is something you can do about it.
By virtue of s.28A(4)Taxes Management Act 1970 you can request that the tax tribunal make a direction ordering HMRC to issue a closure notice to your client using the online application. Appeal to the tax tribunal. This can be for a complete or partial closure. Either way, if a notice is forthcoming, it has the same finality as if the officer had issued it without prompting.
Pro advice: It is worth having one last try at getting the officer to conclude matters. Write a letter stating that you have provided all information that has been requested, and that your client has been fully co-operative. Finish this by telling the officer that if they do not issue a closure notice by a specified date, you will request that a direction is issued by the tribunal.
For more information, we provide a Business Consultation to ensure our clients benefits from tax planning and accounting matters.
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